Review of Accounting Studies

, Volume 14, Issue 4, pp 534–558 | Cite as

Bankruptcy prediction: the case of Japanese listed companies

  • Ming Xu
  • Chu Zhang


This paper investigates if bankruptcy of Japanese listed companies can be predicted using data from 1992 to 2005. We find that the traditional measures, such as Altman’s (J Finance 23:589–609, 1968) Z-score, Ohlson’s (J Accounting Res 18:109–131, 1980) O-score and the option pricing theory-based distance-to-default, previously developed for the U.S. market, are also individually useful for the Japanese market. Moreover, the predictive power is substantially enhanced when these measures are combined. Based on the unique Japanese institutional features of main banks and business groups (known as Keiretsu), we construct a new measure that incorporates bank dependence and Keiretsu dependence. The new measure further improves the ability to predict bankruptcy of Japanese listed companies.


Bankruptcy risk measure Accounting information Option pricing theory Japanese listed companies Bank dependence Keiretsu 

JEL Classifications

G15 G33 



We are grateful to James Ohlson (editor) and two anonymous reviewers for their insightful suggestions that have substantially improved the paper. We also thank Lewis Chan, Kevin Chen, Steven Wei, Xueping Wu, and seminar participants at the Hong Kong University of Science and Technology, University of Macau, the Shanghai University of Finance and Economics, the 2004 FMA European Conference, the 2005 AsianFA Annual Conference, and the 18th Australasian Finance and Banking Conference for helpful comments and suggestions. All errors are our own. Ming Xu gratefully acknowledges the financial support provided by the Hong Kong Polytechnic University Departmental Research Grant.


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Copyright information

© Springer Science+Business Media, LLC 2008

Authors and Affiliations

  1. 1.School of Accounting and FinanceThe Hong Kong Polytechnic UniversityKowloon, Hong KongChina
  2. 2.Department of FinanceThe Hong Kong University of Science and TechnologyKowloon, Hong KongChina

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